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Health & Fitness

Why go Private? Blackerry & Dell

Leveraged Buy Outs, LBOs, have been getting a lot of play in the financial media over the last several months. Primarily focusing on Dell, and the battle waged between founder/CEO Michael Dell and Carl Icahn, this has gripped the attention of many in the markets. I have mentioned it in my last several podcasts as possibly a sign of things to come for the tech giants of the 90s and early 2000s that suddenly have found themselves on the wrong side of innovation.

The story broke Friday (covered by yours truly in this past Saturday’s podcast) – Blackberry was considering several strategic options, one of which was going private. The buzz was immediate, because even though in terms of the market share Blackberry commands, it is a shadow of its former self, but it has incredibly powerful name recognition, enterprise platforms, and encryption software/patents. It caught my attention – while I do not own shares of the company, I have been an avid Blackberry user for the last few years and believe they produce quality products.

This brings us back to a question I have been getting a lot recently. Why would a company bother going public? It seems like a lot of hassle, stress, and work, right? Yes, that is correct! But going private offers a struggling company (albeit one that has a solid chance of recovering and re-launching itself) several benefits not available to publically traded firms, two of which are of outsized importance. First it enables the management team, whether it is former management, or private equity players, to make the difficult decisions regarding personnel and products that often generate a media feeding frenzy. Secondly, and most importantly, private firms do not have to file financials with the SEC. This might sound like a boring accounting footnote, but this “privacy” enables to firm to restructure, re-align, and re-tool without having to worry about meeting every quarterly earnings target. This is the “breathing room” often cited as a benefit of a struggling firm, with a turnaround plan, of going private.

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In the case of Blackberry there is another wrinkle that I thought was interesting. Blackberry is a Canadian company, based in Waterloo, Ontario, and by Canadian law, the government automatically reviews any foreign takeover with asset values of more than C$344 million, or $334 million USD. On top of this automatic review process, which is not too unusual, several prominent government officials have commented that they would like to see the company remain a “national champion.” In addition, several of the entities that have been quoted as showing interest are either investment firms based in Canada, or Canadian pension funds.

And here you thought it was just another Tuesday.

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